SAN FRANCISCO (MarketWatch) — Many will look at J.P. Morgan Chase & Co.
JPM, +0.43%
decision to dump or charge to hold roughly $100 billion in deposits and blame new regulations that make it harder to make a profit on what historically has been a core business for the institution.

That is the line being pushed by J.P. Morgan itself which calls holding deposits for big clients “accommodations.” That is because deposits made by big hedge funds, private-equity firms are viewed by regulators as less reliable. They’re more likely to flee when times get tough. And the banks, in turn are penalized.

While regulations, especially those created under the 2010 Dodd Frank Act, are a big hurdle they are only the latest development in a long story that has led us to a place where regulators feel obliged to micromanage Wall Street conduct.

The story begins in the 1990s when a wave of bank mergers was fueled by a desire to be bigger. Bigger banks — those with more deposits and assets — were able to participate in the capital markets and act as investment banks under some provisions carved out from Glass-Steagall, the Depression Era law that separated regular banking from investment banking.

Banks wanted to participate in the investment banking and brokerage business not only because that is what their big corporate and financial clients wanted, but because it offered more lucrative, albeit cyclical, profits.

This race to be bigger and more profitable ultimately led to the Gramm-Leach-Bliley Act of 1999. It repealed Glass-Steagall, allowing banks unrestricted ability to merge deposit-taking and lending with securities underwriting and trading.

That turn of events brought us mortgage-backed securities, massive leverage and the housing/financial crisis. Those fun times led us to a 849-page law that calls for more laws. By contrast, Glass-Steagall was 37 pages.

While it is correct that regulators don’t make good bankers, banks such as J.P. Morgan are ignoring their own role in this chain of events when they argue that its regulations that are making it difficult for a bank to hold deposits. Financial companies wanted deregulation. They got it. They just couldn’t control themselves.

So now banks can’t afford to hold deposits? History suggests they haven’t been interested in that part of the business for a long time.

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